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New Railway Project

Mongolian Railway State Owned Shareholding Company

Mongolian Railway State Owned Shareholding Company (“MTZ”) was founded

on March 20th, 2008 according to the Order No.189 of State Property

Committee and the Resolution No.82 of March 8th, 2008 of the Mongolian

Government. MTZ has the following main roles:

Ø Construction and operation of railway infrastructure;

Ø Railway transportation services;

Ø Manufacture, assembly and maintenance of railway infrastructure and

rolling stock;

Ø Own and manage railway sector property created by the state and

foreign investment;

Ø Acquisition of locomotives, wagons and other rolling stock;Ø Renting service of railway machineries and properties.

As of now, MTZ is carrying out the following projects and business activities:

Ø New Railway Project;

Ø Renting service of rolling stocks;

Ø Logistics management;

Ø Tianjin Transport and Logistics Center Project;

Ø Freight Wagon Manufacturing Project.

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Mongolian Railway State Owned Shareholding Company (“MTZ”) was founded

on March 20th, 2008 according to the Order No.189 of State Property

Committee and the Resolution No.82 of March 8th, 2008 of the Mongolian

Government. MTZ has the following main roles:

Ø Construction and operation of railway infrastructure;

Ø Railway transportation services;

Ø Manufacture, assembly and maintenance of railway infrastructure and

rolling stock;

Ø Own and manage railway sector property created by the state and

foreign investment;

Ø Acquisition of locomotives, wagons and other rolling stock;Ø Renting service of railway machineries and properties.

As of now, MTZ is carrying out the following projects and business activities:

Ø New Railway Project;

Ø Renting service of rolling stocks;

Ø Logistics management;

Ø Tianjin Transport and Logistics Center Project;

Ø Freight Wagon Manufacturing Project.

The Policy On The Railway Transportation

§ The Parliament of Mongolia ratified the State Policy onRailway Transportation (“Railway Policy”) in June 2010,concluding to construct approximately 5,600 km of railwayinfrastructure in several phases in an effort to extend theunified railway network, utilize large mines, and exportcommodities from those mines

§ The purpose of the Railway Policy is to support in a costefficient and environmentally friendly manner the intensivedevelopment of the mining sector in Mongolia, whilecoordinating actions for the development of infrastructure

1. Railway Transportation and Mining Deposits,2. Domestic Integrated Railway Network,3. Railway Gauge,4. Legislation of Railway Industry,5. Implementation of the Railway Policy and Source of Finance,6. Outcome of the Railway Policy Implementation.

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§ The Parliament of Mongolia ratified the State Policy onRailway Transportation (“Railway Policy”) in June 2010,concluding to construct approximately 5,600 km of railwayinfrastructure in several phases in an effort to extend theunified railway network, utilize large mines, and exportcommodities from those mines

§ The purpose of the Railway Policy is to support in a costefficient and environmentally friendly manner the intensivedevelopment of the mining sector in Mongolia, whilecoordinating actions for the development of infrastructure

1. Railway Transportation and Mining Deposits,2. Domestic Integrated Railway Network,3. Railway Gauge,4. Legislation of Railway Industry,5. Implementation of the Railway Policy and Source of Finance,6. Outcome of the Railway Policy Implementation.

An Approximately 5600 km New Railway Infrastructures To Be Built Pursuant the Railway Policy In 3 Phases

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MTZ Was Granted the Special License In Order to Implement New Railway Project In An Integrated Manner

Pursuant to the Resolution No. 121 of theGovernment of Mongolia:

§ Phase I and Phase II of the railway baseinfrastructure to be built in accordance with theRailway Policy shall be considered as the vitalimportant railway base infrastructure for theeconomy, society and MTZ was granted thespecial license to build the these railway baseinfrastructures with the view of developing theserailway base infrastructures in an integratedmanner.

§MTZ was charged to implement the NewRailway Project via special purpose vehicle incollaboration with the foreign and domesticinvestors.

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Pursuant to the Resolution No. 121 of theGovernment of Mongolia:

§ Phase I and Phase II of the railway baseinfrastructure to be built in accordance with theRailway Policy shall be considered as the vitalimportant railway base infrastructure for theeconomy, society and MTZ was granted thespecial license to build the these railway baseinfrastructures with the view of developing theserailway base infrastructures in an integratedmanner.

§MTZ was charged to implement the NewRailway Project via special purpose vehicle incollaboration with the foreign and domesticinvestors.

Pursuant to the Resolution No. 28 of theGovernment of Mongolia:

The build-operate-transfer concession right of thePhase I and Phase II of the railway baseinfrastructure to be build in accordance with theRailway Policy was granted to the MTZ.

The Concession Right of the New Railway Project Was Granted to the MTZ

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The New Railway Projectv Location: as shown in the picture below, the Project consists of about 1,800 km of new railway base infrastructure running

from§ Tavantolgoi to Sainshand to Khuut to Choibalsan (about 1100 km )§ Tavan Tolgoi to Gashuun Sukhait (“South Line”) (~ 267 km),§ Nariinsukhait to Shiveekhuren (~ 45 km),§ Khuut to Numrug (~ 380 km),§ Khuut to Bichigt (~ 234 km)

Total Project Costs: estimated at c. US$ 8 - 9 billion

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The Parliament of Mongolia ratified the Government action plan for 2016-2020 in September 2016.

Include following areas of “New railway” project:

1. Tavantolgoi-Gashuunsukhait (~267 km) – to complete construction and start operation;2. Khuut-Bichigt (234km) – to complete construction andstart operation;3. Nariinsukhait-Shiveekhuren (45 km) – to complete construction;

The Mongolian Government ratified the National program "Development Route“ in May 2017

The Government action plan for 2016-2020 and the National program "Development Route"

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The Mongolian Government ratified the National program "Development Route“ in May 2017

Include following areas of “New railway” project:

1.Tavantolgoi-Gashuunsukhait (~267 km) - to complete;2. Nariinsukhait-Shiveekhuren (45.3 km) - to complete;3. Tavantolgoi-Sainshand-Khuut (892 km) - to Implement;4. Khuut-Sumber (380 km) - to start construction;5. Khuut-Bichigt (234 km) - to complete.

The eastern railway:• FEED;• Geodesy, Engineering geology, Environmental Impact Assessment• Economic study – (PwC) Price Waterhouse & Coopers

“New Railway” Project

• Feasibility study - McKinsey & Company;• Financial Consulting - BNP Paribas, Guggenheim International;• Legal Consulting - Sidley Austin LLP, MDS Associate.

Progress of the New Railway Project

Khuut - Choibalsan:

Feasibilty study – ChinaRailway Engineering andConsulting GroupCorporation

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Tavantolgoi – Gashuunsukhait :• Owner’s Engineer: Deutsche Bahn International• All researches and design were conducted• Construction work (Samsung C&T)

Nariinsukhait - Shiveekhuren:• Feasibility study – China Railway Design

Corporation• All research and design were conducted

Khuut - Bichigt:

• FEED

• Feasibility Study – China RailwayDesign Corporation

Zuunbayan - Khangi:

• Preliminary Feasibility Study – Mongolian Railway SOSC• Feasibility Study – China Railway Engineering Consulting

Group Company

Жинжоү

Чиндао

Тяньжин

Brief Information of the Tavantolgoi-Gashuunsukhait Railway Project

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The Tavantolgoi-Gashuunsukhait railway will be approximately 240 km long with 2 stations, 5 passing junction andwill pass trough Tsogttsetsii, Bayan-Ovoo, Khanbodg soum of Umnugovi aimag. The starting point of the railway lineis 570 kilometers from Ulaanbaatar and 100 kilometers from Dalanzadgad town of Umnugovi province, and connectsto Gantsmod railway port (People’s Republic of China) through Gashuunsukhait port (Mongolia). With this railwaybuilt, our country can increase export capacity by 30 million tons of coking and energy coal annually. It is alsopossible that Mongolia's mining companies will be able to compete in the global market for cheaper exports, whichwill support coal exports and China's ports (Huanghua, Tianjin, Qingdao, and Jinzhou) and third-country markets.

Тяньжин

Хуанхуа

Tavantolgoi-Gashuunsukhait Railway Project

Project work Main road Borders ETTLength of main line 208.5 km 30km 10km

Construction start date 2019.04 2019.06 2019.04Construction start date 2021.12 2021.06 2021.08

Construction of duration 30 month 24 month 26 month

Axle load 25 tone 25 tone 25 tone

Main structure

• 5 passing junction• 16 bridge /1356 м/• 126 culvert• 8 animal underpass

• 1 station• 1 bridge,

5.9км

• 1 station• 2 bridge

Transportation volume 30 million tone//year 30 million tone/year

30 million tone/year

Gauge • 1435 mm • 1435 mm • 1435 mm

Signaling communication

• Semi automatic blocking system

• Semi automatic blocking system

• Semi automatic blocking system

Project indicators:

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Signaling communication

• Semi automatic blocking system

• Semi automatic blocking system

• Semi automatic blocking system

Border point • Port of 703-704

Previous expenses • 279 million us dollar

Main work (rolling stock not included)

• 375.3 million us dollar

• 116.8 million us dollar

•24.3 million us dollar

Remaining investment (rolling stock not

included)• 531.3 million us dollar

The budget cost (rolling stock not

included)• 826.8 million us dollar

Rolling stock • 220 million us dollar (16 locomotives, 810 Wagons)

Total budget • 1.03 billion us dollar(Infrastructure + rolling stock)

PROJECT PROCESS

2009 2010 2012 20132008Ø “Energy Resource”

LLC was granted to build the base structure

Ø State Policy on Railway Transportation" was ratified.

Ø The license to construct the iron base structure of the first stage of railway policy is granted to the "Mongolian Railway" SOSC

Ø “Mongolian Railway” SOSC was granted permit to build the railway structures of Phase 1 and Phase 2

ØConstruction of the civil and track works contract was signed with Samsung C & T

Ø Feasibility studies implemented by DBI, 1435мм.gauge

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2014 2015 2016

Ø State Policy on Railway Transportation" was ratified.

Ø The license to construct the iron base structure of the first stage of railway policy is granted to the "Mongolian Railway" SOSC

ØDue to financial issues, construction has been suspended.

Ø terminated the EPC contract with the general contractor.

Ø The TT-GS railway gauge was set to be 1435mm.

RESEARCH STUDIES :

• Feasibility Studies and research works:2008- General Feasibility study, Parsons Brinckerhoff Australia Pty Limited;2009- Feasibility Study (narrow gauge) DBI2011- Research for electrization, AECOM2012- Engineering research for trans-load freight, Hua Tie2012- Railway operations plan, Transportation simulation, Technical requirements of locomotives and wagons, Calibre2012- Pre-Feasibility study (board gauge), AECOM2012- DBI’s Detailed Feasibility study monitoring, ZAZA, CANARAIL2012- Plan for free up land, ERR2013- Feasibility study (board gauge), AECOM2013- Financial Modeling, BNP Paribas• Field study:2007- Aerograph, Monmet Engineering Group2009- Geotechnical study, Soil trade;2009- Water and environment study, Aquaterra;2009- Engineering-geology investigation, Tavan-Undes;2012- Geodesy investigation, HBS, Air Survey;2013- Archeology and paleontology research, Science Academy• Drawing:2013- Drawing of high and base infrastructure of board gauge /0-208+500/, Samsung C&T;

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• Feasibility Studies and research works:2008- General Feasibility study, Parsons Brinckerhoff Australia Pty Limited;2009- Feasibility Study (narrow gauge) DBI2011- Research for electrization, AECOM2012- Engineering research for trans-load freight, Hua Tie2012- Railway operations plan, Transportation simulation, Technical requirements of locomotives and wagons, Calibre2012- Pre-Feasibility study (board gauge), AECOM2012- DBI’s Detailed Feasibility study monitoring, ZAZA, CANARAIL2012- Plan for free up land, ERR2013- Feasibility study (board gauge), AECOM2013- Financial Modeling, BNP Paribas• Field study:2007- Aerograph, Monmet Engineering Group2009- Geotechnical study, Soil trade;2009- Water and environment study, Aquaterra;2009- Engineering-geology investigation, Tavan-Undes;2012- Geodesy investigation, HBS, Air Survey;2013- Archeology and paleontology research, Science Academy• Drawing:2013- Drawing of high and base infrastructure of board gauge /0-208+500/, Samsung C&T;

Work components Total work Work done Per cent

2014 Total progress

51,84%

27,8%

2013

22,04%

2012

2%

Step Progress of the Tavantolgoi-Gashuunsukhait railway construction work

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Work components Total work Work done Per cent

Civil workEarthwork

11,634,560м3 10 075 528,96 м3 86,6

Bridge 1,356,23м 715,54м 52,76Culvert work 134 pcs 69,76 pcs 52,06

Track workBallast 802,880м3 280,499,37 м3 34.94

Fastener 1,062,674 sets 52,177,29 багц 4,91%

Current construction work process of base infrastructures is done about 51.84% (86.6% of earthwork, 52.76% of bridge, 52.06% of pipe culverts)

Railway Transit Agreement between Mongolia and China (PRC) 2014.08.21

§The parties shall build railway portsfrom Gashuunsukhait-Gantsmod,Shiveehuren-Sekhe, Bichigt-Zuunhatavch, Sumber-Rashaan§ By opening of these railway portsParty of China has agreed to provide40 % discount rate on one third of thetotal freight exported to third countriesthrough the territory of the People'sRepublic of China.§The agreement was ratified byMongolia, but China have not ratifiedit yet.

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§The parties shall build railway portsfrom Gashuunsukhait-Gantsmod,Shiveehuren-Sekhe, Bichigt-Zuunhatavch, Sumber-Rashaan§ By opening of these railway portsParty of China has agreed to provide40 % discount rate on one third of thetotal freight exported to third countriesthrough the territory of the People'sRepublic of China.§The agreement was ratified byMongolia, but China have not ratifiedit yet.

Tariff allowance

Tavantolgoimine

Mongolia

China

Gantsmod port

Gantsmod stationGashuunsukhait

station

Ports of China Huanghua Tianjin

Third country

23$ 32$

23$ 8$

CostSold price 70$

Cost Sold price 120-150$

PROJECT BENEFITS: (COST STRUCTURE )

1. Current vehicle transportation ( Sold by mine condition) – Profit 47$

2. Railway transportation ( Sold by border condition ) – Profit 89$

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Gantsmod stationGashuunsukhait

station

23$

23$

8$

8$

Cost Sold price 120-150$

No rate discounts- 40$With rate discounts- 24$

200-250$

Cost

Sold price

3. Railway transportation ( Sold by sea port condition ) - Profit 145$

PROJECT BENEFITS: (IMPACT ON SOCIAL AND ECONOMIC):

• Supporting coal and copper exports will reduce transport costs within theterritory of Mongolia and enhances the competitiveness of coal exports.

• Pasture degradation, dust, noise, soil and air pollution problems will besignificantly reduced.

• Auto traffic accidents will decrease and traffic safety will increase.• Tavantolgoi mines production capacity will be increased 2-3 times.• Regularly, about 1200 job opportunities will be created. (about 1000 jobs

in the construction phase, about 1200 jobs in operational phase)• By making railway transport costs in the territory of Mongolia 8$ per tone,

the current road transport price will be reduced 4 times from 32US dollars.• Freight will be increased to 30 million tone annually.• Annual corporate tax of 20-28 million USD will be paid to the state,

During the 25 years of operation accumulated amount of dividend will beabout 1 billion USD to the investors.

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“ТАВАНТОЛГОЙ ТӨМӨР ЗАМ” ХХК 17

• Supporting coal and copper exports will reduce transport costs within theterritory of Mongolia and enhances the competitiveness of coal exports.

• Pasture degradation, dust, noise, soil and air pollution problems will besignificantly reduced.

• Auto traffic accidents will decrease and traffic safety will increase.• Tavantolgoi mines production capacity will be increased 2-3 times.• Regularly, about 1200 job opportunities will be created. (about 1000 jobs

in the construction phase, about 1200 jobs in operational phase)• By making railway transport costs in the territory of Mongolia 8$ per tone,

the current road transport price will be reduced 4 times from 32US dollars.• Freight will be increased to 30 million tone annually.• Annual corporate tax of 20-28 million USD will be paid to the state,

During the 25 years of operation accumulated amount of dividend will beabout 1 billion USD to the investors.

235-331 million us

dollars•Transport

revenues

84-180 million us

dollars•Operation

expenses 2.6 billion us dollars

5.6 billion us dollars

Accumulated over 20 years

Annually

• Internal rate of return (IRR)

11.5%

• Pay back period

12.8 years

• Debt repayments (70%)

7.6 years(6% interest)

PROJECT FINANCIAL PERFORMANCES:

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84-180 million us

dollars

60-85 million us dollars

•Net profit after tax

20-28 million us dollars

•Corporate income tax 537 million us dollars

1.6 billion us dollars

IMPLEMENTATION PLAN OF TAVANTOLGOI-GASHUUNSUKHAIT PROJECT :

2019 2020 2021 2022 2023

q Get funding for the project

q The selection of PMC

q Finalize the border connection points and loading balloon loop

q Update the Feasibility study and environmental social impact assessment

q Update the Designq Contractor

selectionq Start construction

work

q Continue construction works

q Commission the Locomotives and freight car

q Conclude the construction works through out the railway

q Receive locomotives and freight cars

q Handover railway infrastructure State Commission

q Start operation q Continue operation

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q Get funding for the project

q The selection of PMC

q Finalize the border connection points and loading balloon loop

q Update the Feasibility study and environmental social impact assessment

q Update the Designq Contractor

selectionq Start construction

work

q Conclude the construction works through out the railway

q Receive locomotives and freight cars

q Handover railway infrastructure State Commission

Tavantolgoi-Zuunbayan (414.6 km)

Required investment ~1 billion USD

Construction duration – 2019 - 2020

Civil Work:Earthwork - 36,481,586 m3Bridge – 32 (2,580 m)Box culverts - 65 Pipe culverts- 461

Track work:Main line- 414.6 km

Axle load- 25 ton

Brief Information of the Tavantolgoi-Zuunbayan Railway Project

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Axle load- 25 ton

Railway gauge: 1520 mm

Major Connection Points:• Tavantolgoi coal mining• Tsagaan Suvarga copper mining• Kharmagtai copper mining etc.• Sainshand Industrial Park

Capacity – 15 Mtpa

All researches and design were conducted: 100%“Mongolian Railways” SOSC developed the Feasibility study and Design of the Tavantolgoi –Zuunbayan Project in May, 2019.

414.6 km

Tavantolgoi-Zuunbayan project civil and track works construction started in May, 2019

v Within the 16th meeting of Heads of State Council of theShanghai Cooperation Organization was held in Tashkent,capital of Uzbekistan, the third trilateral meeting of theheads of state of Mongolia, the People’s Republic ofChina and Russian Federation is held on June 23, 2016and leaders negotiated that establishing easterneconomic corridor will be implemented when there is aneconomic feasibility.

v Ereentsav-Khuut, Khuut-Bichigt railway projectsimplementing Mongolian railway SOSC are included inthis eastern corridor of the Mongolian territory.

v Firstly, we are working on to implement Khuut-Bichigtrailway project and feasibility study will be finished on2017.

v Construction work of Khuut-Bichigt is included in theAction Plan of the Government of Mongolia for 2016-2020.

Ereentsav-Choibalsan-Khuut-Bichigt: Eastern vertical corridor

1 Railway length Khuut-Bichigt: 216 kmEreentsav-Khuut: 414 km

2 The amount of investment

Khuut-Bichigt: ~1.05 billion dollar

Ereentsav-Khuut: ~1.98 billion dollar

3 The amount of cargo to transport Khuut-Bichigt: 15 million tons

4 Main facility • 4 stations• Transloading facility

5 Payback period To be defined

6 Internal rate of return (IRR) To be defined

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v Within the 16th meeting of Heads of State Council of theShanghai Cooperation Organization was held in Tashkent,capital of Uzbekistan, the third trilateral meeting of theheads of state of Mongolia, the People’s Republic ofChina and Russian Federation is held on June 23, 2016and leaders negotiated that establishing easterneconomic corridor will be implemented when there is aneconomic feasibility.

v Ereentsav-Khuut, Khuut-Bichigt railway projectsimplementing Mongolian railway SOSC are included inthis eastern corridor of the Mongolian territory.

v Firstly, we are working on to implement Khuut-Bichigtrailway project and feasibility study will be finished on2017.

v Construction work of Khuut-Bichigt is included in theAction Plan of the Government of Mongolia for 2016-2020.

6 Internal rate of return (IRR) To be defined

7 Main cargo Coal, zinc, petroleum, plumbum, tungsten, iron ore and rare-earth elements

8 Current situation

• In the amount of Railway tracks onEreentsav-Choibalsan-Khuut-Bichigt hadits technical drawing made by Nippon-Koei, Japan company.

• Pre-feasibility study of Khuut-Choibalsan isbeing done by China Railway EngineeringCorporation of PRC.

• Having pre-feasibility study of Khuut-Bichigt done by Third Railway Surveyand Design Institute Group, China.

Brief Information of Khuut-Bichigt Railway Project

Length of main line 234 km

Railway category I

Total investment required ~US$ 1.25 billion (preliminary)

Construction Duration 2020– 2022

Main structures

• 2 terminal station (Khuut and Bichigt)

• 9 passing junctions • 13 bridges (10117 m)

Track line by Nippon Koei Bichigt

station

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Main structures

• 2 terminal station (Khuut and Bichigt)

• 9 passing junctions • 13 bridges (10117 m)

Axle load 25 ton

Connection point • Khuut mine of Mongolia• Zuunkhatavch port PRC

Transportation volume • 12-15 Mtpa(1)

IRR To be determined.

1 – Preliminary calculation and can be varied due to market condition

Track line by TSDI

Khuut station

Nariinsuhait-Shiveekhuren railway

1 Railway length 45.5 km*

2 The amount of investment 148.3 million dollar*

2 The amount of cargo to transport 21 million tons*

3 The main capacity of railway 25 tons*

4 Main facility • 2 station• 1 passing siding*

5 Payback period 6 years*

6 Internal rate of return (IRR) 14%*

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By building this railway, it is possible to transport coal and coal enriched commodities through railway and would connect to Linxe-Sekhe railway of Chinese railway networks at the port of Sekhe.

Internal rate of return (IRR)

7 Main freight Coal

8 Current situation

• Pre-feasibility study of MTZ was done.

• Two countries negotiated the point to cross border into SekhePort, China.

• This railway included to construct and use in the Action plan of the Government of Mongolia for 2016-2020.

* Pre-feasibility study done by MTZ

Tianjin Transport and Logistics center

1 Shareholding and financing structure:

Tianjin Port (Group) CO., LTD will own 51%, Mongolian side will own 49% of the logistics centers’ share. “MTZ” SOSC will own 51% of Mongolian side.

2 Total estimated project cost ~ USD 34 million

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The development of the Tianjin Transport and Logistics Center infrastructure consists of the following main packages

- Industry (7236 m2);- Warehouse (11538 m2);- Temperature-controlled warehouse

(6684 m2);- Container yard (13679 m2);- Mining products yard (5140 m2);- Inspection yard (7135 m2);

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Project legal acts1. A Memorandum of Understanding between Ministryof Road, Transportation, Construction and UrbanDevelopment of Mongolia (former title) and People’sGovernment of Tianjin city of China, dated 15th ofApril, 2009.2. The Government Resolution No.152, dated 27th ofApril, 2013, to lease and use 10-hectare land in thearea of Dongjiang Free Trade Port Zone of Tianjin cityof China for a period of 50 years.

The development of the Tianjin Transport and Logistics Center infrastructure consists of the following main packages

4 Payback period 11 years

5 Internal rate of return (IRR) 7%

6 Current status of the project

The feasibility study was finished on December, 2019.Tianjin-Mongolian Joint-Stock Company established in June, 2019Various research work related to project is done.

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Thank you! Thank you! "Mongolian Railway" SOSC, Union building, A block, Floor 7, Sun Road – 62, 1st khoroo, 13th micro district, Sukhbaatar district, Ulaanbaatar 14230, MongoliaPhone: E-mail:976-70006622 info@mtz.mnFax: E-mail:976-70106644 project@mtz.mn